Bloodied Trader Pines for Risk as Wall Street Retreats

By Max Abelson and Stephanie Ruhle -
Jul 25, 2012

Sean George kneeled in the Church of
St. Paul the Apostle in Manhattan. He wasn’t praying. A gash
below his right brow bled into his eye and down his nose before
a knee to his groin sent him to the floor.

George, 39, head of credit-derivatives trading at Jefferies
Group Inc. (JEF), was making his Muay Thai debut at the church June 22
in a sport that allows kicking, elbowing and kneeing. His eye
was swelling shut by the time he lost in a split decision.

It was the happiest he’s been all year, he said.

“Right now at work I’m making less risk decisions -- and I
enjoy taking risks,” George, who headed investment-grade
credit-default-swap trading at Deutsche Bank AG before he joined
Jefferies last year, said in an interview. “If you’re in it for
the game and the fight, the game’s over and the fight’s over.”

Wall Street set pay and profit records half a decade ago by
wagering billions of borrowed dollars on lightly regulated
products that didn’t exist a generation earlier. The excitement
and rewards that swelled even after the financial system almost
collapsed in 2008 have been replaced by restrictions and
malaise, according to interviews with more than two dozen
current and former bankers and traders.

Some, like George, are seeking their kicks in less
regulated jobs. Others say they’re struggling to cope as
JPMorgan Chase & Co. (JPM) is being investigated for trades that
caused at least $5.8 billion in losses, Goldman Sachs Group Inc. (GS)
reported the worst first half since before Lloyd C. Blankfein
became chief executive officer in 2006 and Barclays Plc was
fined a record 290 million pounds ($450 million) for trying to
rig global interest rates.

‘No Sexiness’

Banks face new restrictions designed to prevent another
global credit crisis. Limits on proprietary trading, or bets
with firms’ own money, and rules requiring them to hold more
capital make it more difficult to use borrowed funds to boost
returns. As the European sovereign-debt crisis escalates and
economic growth in the U.S. and China slows, clients are
refraining from the deals that power Wall Street profit.

“A lot of my friends who actually lingered for the last
four years are all now getting fired anyway,” said Garber, 45,
currently CEO of IdleAir, a Knoxville, Tennessee-based firm that
provides electricity at truck stops. “The air is taken out.”

Bonuses fell by 20 percent to more than 40 percent at the
major commercial and investment banks last year, compensation-
consulting firm Johnson Associates Inc. said in a report.

Goldman Sachs, the most profitable firm in Wall Street
history before it converted to a bank in 2008, is making less
money, taking fewer risks and lowering pay. It reported that
second-quarter profit dropped 11 percent as compensation in the
year’s first half declined 14 percent. Value-at-risk, a measure
of how much traders can lose in a day, fell to $92 million, the
lowest in six years. Morgan Stanley (MS)’s $87.5 million over the
past two quarters was the smallest in five years.

Broken Phone

Risk is what drew George and the colleagues he respects to
Wall Street, he said. He could bring in millions of dollars in a
single month at his peak, and trading was so intense that during
one credit-default-swap deal he smashed a phone against his
desk, sending part of it three rows away, “one of the records
for the best break,” he said.

Sam Polk, 32, who traded credit derivatives at Bank of
America and the New York-based hedge fund King Street Capital
Management LP, described the lure of Wall Street before he
walked away in 2010.

“You could be a 20-something trader three years out of
school, able to go to any restaurant or club or ballgame on any
night that you wanted, and it was totally paid for,” he said.
“It was a tremendous feeling of power.”

‘Dulling Down’

Robert McTamaney, who helped run Goldman Sachs’s equities-
trading business in Asia until he left last year, likened the
shift on Wall Street to a “dulling down of the colors.”

“The socks are higher, the skirts are longer,” he said.
“It’s like styles: They change, and you’ve got to change with
it or be left behind.”

Another former Goldman Sachs partner, Robert C. Jones,
mourned the loss of the joys of experimentation in banking.

“You’re not going to be able to attract the same kind of
creative people that are looking to develop innovative new
strategies in an environment where innovation is frowned upon,”
said Jones, 55, who helped found and lead the bank’s
quantitative equity-fund-management unit before leaving in 2010.
“The increasingly detailed and micromanaged regulatory
environment has taken a lot of the fun out of the game.”

McWelling Todman, a professor of clinical psychology at the
New School in New York, said restrictions frustrate risk-takers.

“If you’re essentially telling them to be like everybody
else and to follow rules, you’re amputating a large part of who
they are, who they consider themselves to be,” Todman said.

The response to curtailed risk is similar to withdrawal,
according to Leo Goldberger, an emeritus psychology professor at
New York University, where he studied stress.

“It would be like a drug addict not getting what he has to
have,” Goldberger said.

‘Changed Drastically’

Fabrizio Capanna quit in May as BNP Paribas SA (BNP)’s European
head of retail and electronic credit trading to start JCI
Capital Ltd., a privately owned financial-advisory firm in
London, he said in June. He left the month that BNP Paribas,
France’s largest bank, announced it had reduced its 2011 bonus
pool for traders and other risk-related employees by 52 percent
as Europe’s debt crisis threatened revenue.

“The reason I am leaving the banking sector is that it
changed drastically,” said Capanna, 48. “Less motivating in
terms of remuneration, less challenging in terms of risk-taking,
heavier from a bureaucratic point of view.”

Dim Light

Michael Meyer, a former head of global investment-grade
sales and trading at Bank of America who left in 2007, said he
doesn’t see life at the big banks “getting better anytime
soon.” The Charlotte, North Carolina-based lender announced
July 18 it would trim $3 billion from annual expenses in
investment banking, trading and wealth management, in addition
to the 30,000 jobs in other units already targeted for cuts.

“The light at the end of the tunnel is dim,” said Meyer,
now co-head of sales and trading at New York investment bank
Seaport Group.

Citigroup, the third-largest U.S. bank, said in January
it’s cutting about 5,000 workers as clients take fewer risks and
the firm adjusts to new trading regulations.

“Working at those large places can be a lot less fun these
days, how it feels day in day out,” said Herald “Hal” Ritch,
CEO of Sagent Advisors LLC, a New York-based investment bank.
“It grinds on people and wears them down psychologically.”

Ritch, 61, said the downturn is worse than anything he has
seen since starting work in 1975 at firms including Citigroup,
Kidder Peabody & Co. and Donaldson, Lufkin & Jenrette.

Lost World

“I understand their frustration, but we can’t go back to a
world of vast risk-taking,” said Eugene N. White, an economics
professor at Rutgers University in New Brunswick, New Jersey.
“You have individuals who take risks and get the private gains,
whereas if their gamble fails the cost is socialized.”

Neil M. Barofsky, the former special inspector general in
charge of overseeing the Troubled Asset Relief Program, whose
book “Bailout” was published this month, said that bankers
sometimes confuse what’s best for them with what’s best for
others. Limiting outsized risk and pay on Wall Street “would
unquestionably be a very good thing for the country,” he said.

Even as compensation costs have declined at Goldman Sachs,
the firm paid each employee an average of $225,789 for the first
six months, five times what a starting New York City firefighter
would make in a full year. U.S. unemployment has been stuck
above 8 percent for 41 consecutive months.

For George, the Muay Thai fighter, fulfillment is less
about the money than the excitement.

“People are sad,” he said of his colleagues on Wall
Street. “They don’t have any risk. There is nothing to be
stressed about. The upside is you get paid a little more than
your base. The downside is, you’re fired.”

George, who said he had his best month of the year in May,
praised firms such as New York-based Jefferies that are less
regulated than the biggest banks. Even so, he said, Wall Street
is “not the same industry that drew me in.”

Two years ago he opened C3 Athletics, a martial-arts
training center in Stamford, Connecticut. He already has
scheduled another fight.